Dotel Company's 12\31\10 statement of financial position reports assets of $6,000,000 and liabilities of $2,500,000.All of Dotel's assets' book values approximate their fair value, except for land, which has a fair value that is $400,000 greater than its book value.On 12\31\10, Egbert Corporation paid $6,100,000 to acquire Dotel.What amount of goodwill should Egbert record as a result of this purchase?

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Quizplus · Accepted Answer

The goodwill is the excess of the purchase price over the fair value of the net assets acquired. The fair value of the net assets is the sum of the fair values of the individual assets minus the fair values of the individual liabilities. In this case, the fair value of the net assets is $6,000,000 + $400,000 - $2,500,000 = $3,900,000. The goodwill is therefore $6,100,000 - $3,900,000 = $2,200,000.

Dotel Company's 12\31\10 Statement of Financial Position Reports Assets of $6,000,000